MARKET SHARE

Most Integrators Meet Quarterly Earnings

Nov 07, 1999

Bill Loomis

By Bill Loomis

The earnings season is nearly over, and despite concerns about year 2000 disruptions in business, most federal integrators met or exceeded expectations. Of course, potential Y2K-related lockdowns and deferrals could have more of an impact on fourth-quarter results, as could the current budget delays in Congress. Let's briefly review the September quarter earnings of major public companies dealing in federal information technology.

American Management Systems, Fairfax, Va., announced third-quarter earnings of 43 cents per share, up 26 percent from 34 cents in the same period last year on a 14 percent increase in revenue. Federal revenue at AMS was also strong at $79.1 million, up 18 percent and representing 25 percent of total revenue. AMS' Defense Department Standardized Procurement System and other federal contracts AMS has won over the past year continue to grow.

BTG Inc. , also of Fairfax, reported fiscal 2000 second-quarter earnings per share of 12 cents vs. 1 cent a year ago, on 27 percent lower revenue at $63.9 million. The decline in revenue is the result of BTG selling its products business and winding down its remaining product contracts. Since it divested its products business, BTG has shown strong improvement in its gross profit margin, 27 percent vs. 18.7 percent a year ago.

Vienna, Va.-based GRC reported fiscal 2000 first-quarter earnings per share of 16 cents (21 cents including nonrecurring gain) vs. 10 cents a year ago, on 25 percent higher revenue at $45.8 million. Most of the growth came from continued expansion of the Army Global Combat Support Systems contract and expansion of other contracts.

GRC's refocus on its federal business three years ago has resulted in strong profit-margin improvement, with the operating profit margin reaching 7.1 percent in the quarter. The outlook for GRC seems strong, with its backlog growing to approximately $600 million, up from $569 million reported in the fourth quarter of fiscal 1999.

Nichols Research, Huntsville, Ala., reported fiscal 1999 fourth-quarter earnings per share of 35 cents vs. 35 cents a year ago on 2 percent lower revenue (from $128 million down to $125 million). The operating profit margin before changes was 8.5 percent vs. 7.2 percent a year ago, reflecting cost cutting at Nichols. By Nov. 16, the merger with Computer Sciences Corp. should be completed, eliminating one more from the list of public federal IT companies.

The largest IT service companies experienced sluggish growth in their federal units. Unisys of Blue Bell, Pa., reported earnings per share of 40 cents vs. 25 cents, on 4 percent revenue growth. It shocked investors when it said revenue will be lower than anticipated in the next couple of quarters due to a slowdown in its federal network integration and management business.

Unisys said strong gains in the third quarter in fiscal 1999 with its commercial business were offset by declines in its federal business.

Overall, with the exception of larger federal companies, growth seems strong among the public federal integrators and the outlook appears favorable.

Bill Loomis is managing director of the Technology Research Group and Legg Mason Wood Walker, Inc., Baltimore. He can be reached at wrloomis@leggmason.com. This information is based on sources believed to be reliable but is not guaranteed as to completeness or accuracy and is not intended to be an offer to buy or sell any security.